The changing rules for academy funding

Academies are currently dealing with complex and changing funding rules. Vincent King looks at how some schools have been coping.

Research from the National College for School Leadership found that for converted academies the most common reason behind the decision to convert (given by 89 per cent of respondents) was the potential for access to increased funding (Academies: Research into the leadership of sponsored and converting academies, 2011).

It is clear from this that the funding and finances of a newly formed academy following conversion are at the forefront of the school leadership’s mind.

However, the autonomy afforded to academies can carry an increased burden and responsibility, making it no surprise that the same study also found that funding and financial resources were the biggest challenge facing academy leaders in their role.

The fact that not all academies have found access to funding and managing budgets plain sailing under the existing regime has been recognised by the Department for Education (DfE). As they look to introduce the overhauled system in April, the question lingers about how converted academies have dealt with the ever-changing funding regime that has been key for making the conversion.

One of the main criticisms of the previous academy funding regime was the disparity in funding provision for academies across the country. It is for this same reason that it is difficult to provide a specific summary of all converted academies’ experiences.

However, in times when purse-strings are being tightened throughout the public sector and the regime for academy funding continues to be altered, all converted academies are, and will continue to be, affected by the changes.

The problems inherent in the previous, and current, academy funding regime have been widely discussed. Such inadequacies are the result of a number of factors and, in the Education Funding Agency’s own words, created a “complex, opaque, unfair and often perverse” system.

The failures of the Young People’s Learning Agency led to misinformation, mistakes and confusion with academies having budgets adjusted by as much as £150,000 in the middle of the academic year.

This has meant school leadership teams have often struggled to plan effectively, or where plans have been made they have had to be altered or discarded as a result of unexpected budget changes.

If you add to this the spectre of real-terms cuts during this period of austerity, the potential effects on a particular academy’s funding of the incoming national funding formula, and increased focus on greater equity for disadvantaged children, the result is a shifting landscape which academy heads, governors and leadership teams have had to, and continue to, adapt to.

The response of converted academies

The key word for converted academies with regard to funding has been change. Academies have constantly had to respond to the uncertainty that such change has brought – demanding flexibility and an ability to adapt in relatively short timescales.

This uncertainty has led academies to reconsider long-term plans, shift priorities and, in some cases, look for innovative ways of maximising funding for the academy.

The funding changes have impacted on the workload and resources of leadership teams with increased time and effort being expended getting to grips with each change to try and appreciate what they will be entitled to and how they can ensure that they receive those funds.

One result of this has been an apparent rise in the role and importance of school business managers (SBMs). While this has been the case across all school types, as the National College recognises in its 2012 publication Funding the Future: How schools are responding to funding changes: “The SBM role has been particularly significant where schools have converted to academy status.”

The benefit of having a member of staff that can consider educational problems in a financial context, and who can equip others to do the same, is being increasingly recognised. SBMs, along with heads, leadership teams and governors, are seeking to maximise academy funds, be that through cost-savings and efficiencies with existing arrangements or seeking new avenues to bring increased revenue into academies.

Increasingly academies are scrutinising the value for money of new and existing contracts, including turning away from local authority contracts where they are seen as expensive, and placing heightened emphasis on cost-benefit analysis in line with academies’ key aims. To this end many are adopting a collaborative approach to procurement, seeking to reduce costs in the services they require through bulk-buying power. Even where they operate outside a formal chain or partnership academies are looking to create joint arrangements to benefit from these savings.

One of the potentially biggest losers under the national funding formula in this respect are academies in rural locations. They are often burdened with higher service costs because of their location, and for the same reason may find it more difficult to obtain a reduction in costs through collaboration.

Academies are increasingly investigating collaboration in other areas. As budgets tighten CPD for staff is commonly hit, but academies are looking to save costs by reducing external training and instead mutually sharing knowledge between themselves.

Collaborative purchasing of equipment, sharing of facilities, resources and staffing have all risen up the agenda as academies seek to make efficiency savings. This may particularly be the case for academies with 6th-forms as the new 16 to 19 funding restrictions come into effect, as academies look to ways to try and maintain the scope of their offering to students. In addition, clarification in the Finance Act 2012 regarding VAT and the “cost sharing exemption” should serve as a catalyst for more shared services in the education sector as this addresses the concern that such arrangements could give rise to irrecoverable VAT which was previously undoubtedly an impediment.

Increasing funding from various sources is, equally, being given greater weight, as academies look to adopt strategic and organised approaches to fundraising. Academies, often driven by SBMs, are looking for innovative and often entrepreneurial ways to increase funding through additional external grants, hiring out facilities and providing services to the community.

The additional benefit of these initiatives is an increased profile in the local community which, along with effective marketing and promotion, can have the effect of increasing intake numbers; which is being given greater importance as a tool to counteract any potential budget reductions.

Academies, as exempt charities, need to consider their tax position – depending upon the nature and amount of funding, it may be beneficial to create a trading subsidiary which can gift aid profits to the charity which would otherwise be subject to corporation tax.

What next?

The requirement for an academy to effectively manage its finances and plan strategically and adaptively for the upcoming changes has increased with the ongoing uncertainty and changes. This does not look set to change. With the implementation of the national funding formula in April it can only be hoped that greater stability will allow academy leaders greater scope for effective forward planning.

However, in the current climate of austerity and change, leaders will need to maintain their focus on finances, collaboration and innovation in order to successfully steer their academies through whatever further challenges they face.

Vincent King is partner and education specialist at national law firm Cobbetts.